Welcome. The contents of this blog comprise my personal observations on the stock market from the perspective of using both fundamental and technical analysis by reviewing market data and stock charts based on the methodologies of William O'Neil of Investors Business Daily and his books, from Stan Weinstein's books, and most of all, through lessons learned over the years by listening to Gary Kaltbaum's "Investor's Edge" radio show on Business Talk Radio.

Criteria of stocks include first researching sectors to determine which are strong and which are weak using the ADX indicator (>40 = increased volatility); focusing in on a leading sector and buying leading stocks on a high volume
breakout (minimum 2x average) above a base; stock prices are higher than $25/share with daily average volume higher than 300K; positive and increasing PVT (indicating institutional ownership), positive and increasing RSI (indicating relative strength compared to other stocks in the market).

Please keep in mind that
I am by no means an expert, nor are my posts intended for anything other than to share my opinions of what stocks are doing for the purpose of getting feedback. Thus, please do your own research before taking action on what you read here. I will be adding posts on topics of interest as I learn about them.

Tuesday, July 1, 2008

$BTK AMEX Biotechnology Index, CELG, and DNA.

This one is throwing me through a loop. AMEX Biotechnology Index ($BTK).

I noticed it because tonight while doing my market scans, the ADX on this one was 38 (just below my threshold level of 40 which would interest me.) Yet it's not necessarily the volatility that excites me, but it seems as if there was a trading range (on the 10-day, 15-min chart) that was broken out of today with some momentum. However, that is not what excited me.

What excited me was that I saw a trendline where each previous high formed a descending line which means that the index was moving in a pattern. I couldn't see this pattern until I zoomed out to the 1-year daily chart (below).

I noticed that this declining trendline didn't only repeat in time, but it also repeated in magnitude. I love it when I see hints of fractals in stock market psychology. It makes me wonder whether there is a greater psychology that connects us and leads us in our thinking.

What I saw was that not only were there trendlines which had orders of magnitude in their respective scales, but I smiled when I saw that the larger trendline connected with a smaller trendline almost exactly to form a declining channel. (Not only that, but from April 2008 - June 2008, if you mirror the trendline around the massive trendline from the high in October 2007, you form a pitchfork-looking channel around where the stock moved.) From this, I understood that this index moves not in breakout / breakdowns from bases, but in breakouts / breakdowns from channel progressions.

So, if I were to use this information, I would find a healthy stock within the sector, and I would buy that stock when it and the $BTK broke out of its declining channel, above $748.60. I would set a stop at $736.50 because if you see those long lines on various stock trading days, this index has a tendency to seriously crash and recover all within one trading period. The risk here is that with all these whipsaws, I would likely be taken out by one of them, however, hopefully by then my profit from the underlying stock would be large enough to make the trade successful.

All this being said, I will take a look at a few stocks to see if any are worth investing in. At a glance, it seems as if CELG, BIIB, DNA, AMGN, ILMN, and OSIP are all stocks which would be a safe purchase. Note that only CELG, DNA, and ILMN broke out on the high volume I would find attractive. ILMN makes me nervous because although it broke out nicely, it lost its strength after the breakout. Hence, I will probably make an opening trade on both CELG and DNA with stops right below their breakout areas ($64.90 stop on CELG, and $76.90 stop on DNA).

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